Remember when game designer Jane McGonigal mentioned in her talks that she is aiming to have a game designer win a Nobel Award? Well, we are closer to that. This year’s Nobel Award for Economics went to Oliver Hart and Bengt Holmström for their work on contract theory. What may sound pretty dull at first glance, is actually a pretty interesting piece on human behaviors and how it can be used to make better contracts.
Their work did not only explain how contracts are negotiated, but how the contracts become better. Contracts are an important piece in our modern life. Without them we would fall into a messy chaos. Hart and Holmström described how an ideal contract would look like and created a theoretical framework for that. But theory is one thing, real life another one. Especially when we have to consider human behavior in contracts and contract negotation.
And here it becomes interesting, because the laureates elaborated in their work on specific incentives that influence human behavior to make the contract outcome better for both sides. The Nobel Committee explicitely referred to car insurance contracts and deductibles, as well as work contracts with salaries and bonus payments.